Service businesses struggle with a reality that is foreign to manufacturers: Customers “interfere” with their operations. To deliver consistent quality at sustainable cost, companies must learn to manage that involvement.

Feature

Never a fad, but always in or out of fashion, innovation gets rediscovered as a growth enabler every half dozen years. Too often, though, grand declarations about innovation are followed by mediocre execution that produces anemic results, and innovation groups are quietly disbanded in cost-cutting drives. Each managerial generation embarks on the same enthusiastic quest for the next new thing. And each generation faces the same vexing challenges—most of which stem from the tensions between protecting existing revenue streams critical to current success and supporting new concepts that may be crucial to future success.

In this article, Harvard Business School professor Rosabeth Moss Kanter reflects on the four major waves of innovation enthusiasm she’s observed over the past 25 years. She describes the classic mistakes companies make in innovation strategy, process, structure, and skills assessment, illustrating her points with a plethora of real-world examples—including AT&T Worldnet, Timberland, and Ocean Spray.

A typical strategic blunder is when managers set their hurdles too high or limit the scope of their innovation efforts. Quaker Oats, for instance, was so busy in the 1990s making minor tweaks to its product formulas that it missed larger opportunities in distribution. A common process mistake is when managers strangle innovation efforts with the same rigid planning, budgeting, and reviewing approaches they use in their existing businesses—thereby discouraging people from adapting as circumstances warrant. Companies must be careful how they structure fledgling entities alongside existing ones, Kanter says, to avoid a clash of cultures and agendas—which Arrow Electronics experienced in its attempts to create an online venture. Finally, companies commonly undervalue and underinvest in the human side of innovation—for instance, promoting individuals out of innovation teams long before their efforts can pay off.

Multicultural teams offer a number of advantages to international firms, including deep knowledge of different product markets, culturally sensitive customer service, and 24-hour work rotations. But those advantages may be outweighed by problems stemming from cultural differences, which can seriously impair the effectiveness of a team or even bring it to a stalemate. How can managers best cope with culture-based challenges?

The authors conducted in-depth interviews with managers and members of multicultural teams from all over the world. Drawing on their extensive research on dispute resolution and teamwork and those interviews, they identify four problem categories that can create barriers to a team’s success: direct versus indirect communication, trouble with accents and fluency, differing attitudes toward hierarchy and authority, and conflicting norms for decision making. If a manager—or a team member—can pinpoint the root cause of the problem, he or she is likelier to select an appropriate strategy for solving it.

The most successful teams and managers, the authors found, dealt with multicultural challenges in one of four ways: adaptation (acknowledging cultural gaps openly and working around them), structural intervention (changing the shape or makeup of the team), managerial intervention (setting norms early or bringing in a higher-level manager), and exit (removing a team member when other options have failed). Which strategy is best depends on the particular circumstances—and each has potential complications. In general, though, managers who intervene early and set norms; teams and managers who try to engage everyone on the team; and teams that can see challenges as stemming from culture, not personality, succeed in solving culture-based problems with good humor and creativity. They are the likeliest to harvest the benefits inherent in multicultural teams.

For manufacturers, customers are the open wallets at the end of the supply chain. But for most service businesses, they are key inputs to the production process. Customers introduce tremendous variability to that process, but they also complain about any lack of consistency and don’t care about the company’s profit agenda.

Managing customer-introduced variability, the author argues, is a central challenge for service companies. The first step is to diagnose which type of variability is causing mischief: Customers may arrive at different times, request different kinds of service, possess different capabilities, make varying degrees of effort, and have different personal preferences.

Should companies accommodate variability or reduce it? Accommodation often involves asking employees to compensate for the variations among customers—a potentially costly solution. Reduction often means offering a limited menu of options, which may drive customers away. Some companies have learned to deal with customer-introduced variability without damaging either their operating environments or customers’ service experiences. Starbucks, for example, handles capability variability among its customers by teaching them the correct ordering protocol. Dell deals with arrival and request variability in its high-end server business by outsourcing customer service while staying in close touch with customers to discuss their needs and assess their experiences with third-party providers.

The effective management of variability often requires a company to influence customers’ behavior. Managers attempting that kind of intervention can follow a three-step process: diagnosing the behavioral problem, designing an operating role for customers that creates new value for both parties, and testing and refining approaches for influencing behavior.

On February 1, 2003, the world watched in horror as the Columbia space shuttle broke apart while reentering the earth’s atmosphere, killing all seven astronauts. Some have argued that NASA’s failure to respond with appropriate intensity to the so-called foam strike that led to the accident was evidence of irresponsible or incompetent management. The authors’ research, however, suggests that NASA was exhibiting a natural, albeit unfortunate, pattern of behavior common in many organizations. The foam strike is a prime example of what the authors call an ambiguous threat—a signal that may or may not portend future harm.

Ambiguous threats differ from threats with obvious causes—say, a fire in the building—for which the response is clear. They also differ from unmistakable threats that may lack straightforward response paths (such as the frightening oxygen-tank explosion aboard Apollo 13). However, when the warning sign is ambiguous and the threat’s potential effect is unclear, managers may choose to ignore or discount the risk. Such an approach can be catastrophic.

Firms that do a good job of dealing with ambiguous threats do not improvise during a crisis; rather, they apply a rigorous set of detection and response capabilities that they have developed and practiced beforehand. In this article, the authors outline how to put such capabilities in place long before a crisis strikes. First, companies need to hone their teamwork and rapid problem-solving skills through practice. Second, they must learn to recognize weak signals, amplify the threat, and encourage employees to ask disconcerting “what if” questions in a safe environment. Finally, they should explore possible responses to threats through quick, low-cost experimentation.

When disaster strikes, many corporations respond generously. After the 2004 tsunami, for instance, U.S. firms alone contributed more than half a billion dollars in cash and in-kind donations. But a host of reactive efforts don’t produce the best results—and may even get in the way.

To make the most of their humanitarian efforts, companies need to address two fundamental questions: What kind of aid do we want to contribute—philanthropic (money and in-kind donations) or integrative (backroom, operational assistance)? And how do we want to contribute it—by working one-on-one with a single agency or by joining a consortium? The permutations of those two decisions lead to four different approaches, each with its own strengths and challenges.

Single-company philanthropic partnerships work well when there’s a good match between what a company wants to contribute and what an agency needs, as with Coca-Cola’s donations of water to the Red Cross. More diffuse, but also potentially more effective, are the benefits of joining a multicompany philanthropic partnership, which enables the resources of many firms to be matched to the missions of many agencies. More difficult to establish but more fundamental in its impact is a single-company integrative partnership, in which a corporation works to improve the way an aid agency operates, as the logistics giant TNT has done to help the distribution efforts of the World Food Programme. And most difficult to implement—but potentially most effective—is a multicompany integrative partnership, which brings to bear the collective best practices of many companies to improve the response capabilities of multiple agencies.

It’s easy to see why the image of a relief worker carrying a sack of grain delivers an emotional wallop, but the behind-the-scenes work of process enhancement is just as crucial to humanitarian efforts. The sooner executives realize this, the better positioned the world will be to respond to global disasters.

HBR Case Study

Simon Pemberton, a materials chemist at Applied Devices, is escorted by security guards to the company parking lot, where an HR manager tells him he’s fired. Until that moment, things seemed to be going well. Simon had known, of course, about AD’s zero-tolerance program, but it hadn’t occurred to him that he’d violated it—particularly since his unauthorized e-mailing and Internet use were meant to serve the goal of scientific inquiry.

Don Hardee, the CEO, strongly believes that deviations from a defined standard of behavior shouldn’t be tolerated at AD. The dangers they pose to employees’ health, safety, and morale, not to mention the company’s productivity and reputation, are too great. Shirlee North, the head of HR, agrees. Ever since the jilted husband of an employee burst into AD’s lobby waving a pistol, workers have been clamoring for security, and the zero-tolerance policies provide that. Initially, the program covered only weapon and drug possession, but the list of offenses warranting termination has grown considerably.

When Shirlee’s second in command argues that such policies are unworkable and unjust, Shirlee points out that the company intervenes only when the action is clearly prohibited, the harm actual or imminent, and the evidence unambiguous. Are Don and Shirlee right to stand firm, or should Applied Devices modify its program?

Commenting on this fictional case study are Janet Parker, the senior vice president of human resources for AmSouth Bank; Eugene Volokh, a professor at UCLA School of Law; Jean Halloran, the senior vice president of human resources at Agilent Technologies; and Michael G. Cherkasky, the president and CEO of Marsh & McLennan.

Big Picture

One of the biggest management challenges anywhere is how to improve student performance in urban public schools in the United States. There has been no shortage of proposed solutions: Find great principals and give them power; create competitive markets with charters, vouchers, and choice; establish small schools to ensure that students receive sufficient attention—the list goes on.

Although these approaches have created positive changes in individual schools, they have failed to produce a single high-performing urban school system. In this article, the authors, who are members of Harvard University’s Public Education Leadership Project (PELP), explain why. One reason, they say, is that educators, researchers, and policy makers see the district office, which oversees all the schools in a district, as part of the problem rather than a crucial part of the solution—and this is a mistake. The district office plays an important role in developing strategies, identifying and spreading best practices, developing leadership capabilities at all levels, building information systems to monitor student improvement, and holding people accountable for results.

The authors propose a holistic framework that district leaders can use to develop an improvement strategy and build coherent organizations to implement it. The framework is based on three beliefs. First, school systems need their own management models; they cannot simply import them from the business world. Second, “the customer” is the student; therefore, urban districts need to focus on improving teaching and learning in every classroom at every school. Third, district leaders must design their organizations so that all the components—culture, systems and structures, resources, and mechanisms for managing stakeholders and the external environment—reinforce one another and support the implementation of the strategy across schools.

Best Practice

In the aftermath of seismic debacles like those that toppled Enron and WorldCom, corporate boards have been shaken up and made over. More directors are independent these days, for instance, and corporations now disclose directors’ salaries and committee members’ names. Research shows that most of the changes are having a positive effect on companies’ performance. They are primarily structural, though, and don’t go to the heart of a board’s work: making the choices that shape a firm’s future. Which decisions boards own and how those calls are made are largely hidden from the public. As a result, boards are often unable to learn from the best governance practices of their counterparts at other companies. This article pulls back the curtain and provides an inside look.

Drawing on interviews with board members and executives at 31 companies, along with a close examination of three boardroom decisions, the author identifies several formal processes that can help companies improve their decision making: creating calendars that specify when the board and the standing committees will consider key items; drafting charters that define the decisions committees are responsible for; and developing decision protocols that divvy up responsibilities between directors and executives.

The author also identifies a number of informal decision-making principles: Items that are strategically significant and touch on the firm’s core values should go to the board. Large decisions should be divided into small pieces, so the board can devote sufficient attention to each one. Directors must remain vigilant to ensure that their decisions are effectively implemented. The CEO and either the nonexecutive chair or the lead director should engage in ongoing dialogue regarding which decisions to take to the full board and when. And directors should challenge assumptions before making yes-or-no decisions on management proposals.

Tool Kit

The information age has brought with it a host of new technologies—and an overabundance of choices. Managers are hard-pressed to figure out what all those innovations do, let alone which ones to adopt and how to implement them. Furthermore, many so-called advancements haven’t lived up to expectations: Frustration, delays, and even outright failures tempt many executives to avoid dealing with IT altogether.

But those who turn away are selling their companies short. Executives have three critical responsibilities when it comes to IT: They must help choose technologies, using an inside-out approach that keeps the true needs of the business in mind; smooth the adoption of those technologies, taking into account that they may encounter strong resistance; and encourage their exploitation, by leveraging already standardized data and work flows. What’s most important, though, is that they look beyond the individual IT projects they select to the broader picture of how IT is likely to affect the organization.

Information technology can be classified into three types, each of which provides companies with a particular level of change. Function IT encompasses technologies—such as spreadsheet and word-processing applications—that streamline individual tasks. Network IT includes capabilities like e-mail, instant messaging, and blogs and helps people communicate with one another. Enterprise IT brings with it approaches such as customer resource management and supply chain management and lets companies re-create interactions between groups of workers or with business partners. Different types of technology bring about different types of organizational change, and managers should tailor their own roles accordingly.

Categorizing IT in this manner can help leaders determine which technologies to invest in and how they can assist organizations in making the most of them.